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MDM - Commentary October 12, 2011

Published:

12 Oct 2011 18:43 ET

Many leading stocks are acting poorly such as BIDU, PCLN, GMCR, MA, CMG, a couple which are trading around their 200 day moving averages.

This bounce has been mostly led by junk stocks that were oversold during the last downtrend.

Quantitative easing (QE) in the UK and in Europe could have some bullish impact on the major stock indices just as QE in the US did starting in March 2009. The Bank of England has increased the size of its asset repurchase program from $200 to $275 billion, and the European Central Bank is waiting for the bill to pass on its $600 billion bank bailout fund and is expected to pass within the next several days. Meanwhile, Geithner and others felt this would not be enough to combat the mounting debt in Europe.

Thus money printing by central banks is alive and well. This bodes well in the long run for precious metals which are currently forming a base. This also potentially bodes well for stocks. But since we are in a junk stock led straight up from the bottom rally, and volatility remains high, there is ample risk to switching to a buy or sell signal at this juncture.

Thus, the model remains on its neutral/cash signal for now.

If the next distribution day comes within the next few trading days, it could push the model into a sell signal.

On the other hand, constructive action by leading stocks in the days ahead could push the model into a buy signal.

Meanwhile, we will continue to issue reports on actionable stocks that can be bought or shorted.